Latest foreclosure ruling sides with Utah homeowners

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Contrary to the findings of two other federal judges in Utah, U.S. District Judge Bruce Jenkins has ruled that Bank of America must follow state law when it forecloses on homeowners in this state.

Jenkins' decision widens the split on the federal bench over legal questions about whether Bank of America's ReconTrust unit has been illegally foreclosing on Utah homeowners. It also ups the stakes by declaring that a rule issued by the Comptroller of the Currency is contrary to Congress' intent in passing laws that govern national banks.

Federal judges Ted Stewart and David Sam had previously held that under federal laws, ReconTrust could carry out foreclosures in Utah under its own name and that it is governed by the laws of Texas, where it was headquartered, and not Utah law.

Two other judges  Dee Benson and Clark Waddoups  have come to the same conclusion as Jenkins. With the split on the local bench, the 10th Circuit Court of Appeals in Denver probably will be asked to make a definitive ruling.

In a detailed and sharply worded decision, Jenkins labeled as "fantasy" arguments that ReconTrust exercises its duties in a foreclosure at its Texas headquarters and is, therefore, is governed by Texas law.

"The [default] notice is filed in Utah," Jenkins wrote. "The sale is conducted in Utah, often on the steps of the local county courthouse. Those acts do not occur in Texas."

Under Utah law, only a local attorney or a title insurance company can carry out foreclosures in the state, but ReconTrust had been doing so under its own name, actions that spawned numerous lawsuits.

Like other states, Utah was hit by a tsunami of foreclosures after the real estate bubble burst in 2007.

From 2007 through 2011, 56,863 foreclosure auctions took place in Utah, according to RealtyTrac, a real estate data research company. From 60 percent to 80 percent of those foreclosures were conducted by ReconTrust, depending on the county, according to the estimate of one homeowner activist.

Jenkins reached back to the early 20th century legislative history to conclude that Congress intended national banks to comply with state statutes for actions such as those undertaken by ReconTrust.

But going further, the senior judge declared that the Controller of the Currency, the agency that regulates national banks, had overreached when it promulgated the rules relied on by ReconTrust for its arguments that Texas law governs its foreclosures in Utah.

"There are 50 states. Each has its own Legislature and each its own set of laws relating to state-chartered banks. Texas does not pass Utah banking laws. Utah does not pass Texas banking laws," Jenkins wrote.

Bank of America representatives and attorneys for ReconTrust did not reply to two emails seeking comment.

But Abraham Bates, one of the attorneys who represents the homeowners involved in the lawsuit, said he would be "highly surprised" if ReconTrust does not appeal. He also said Jenkins' ruling will echo beyond Utah.

"This is a decision that's going to have a long-lasting imprint, not just on the way foreclosures are conducted in the state of Utah, but for foreclosure attorneys all across the country," said Bates.

With Jenkins' decision, Bates said attorneys pursuing a proposed class-action lawsuit against ReconTrust would ask Stewart to reconsider his recent decision that tossed out that action.

The Utah Attorney General's Office has sought to intervene in another case involving ReconTrust in which Sam ruled against the homeowners.

A state law approved last year allows Utah homeowners to collect damages, including legal fees, if they were illegally foreclosed upon.

ReconTrust actually stopped foreclosing in its own name in August of last year when Attorney General Mark Shurtleff threatened a lawsuit. But Jenkins noted company attorneys have been arguing in court since then that ReconTrust still has the legal right to foreclose.

tharvey@sltrib.com

Twitter: @Tom HarveySltrib #utforeclosures 

Split federal bench

U.S. District court judges have ruled on opposite sides of the question over whether Bank of America's unit ReconTrust has been legally foreclosing on homes in Utah

Decisions in favor of ReconTrust

Ted Stewart, David Sam

Decisions in favor of homeowners

Dee Benson, Clark Waddoups and Bruce Jenkins

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